Aviation sector: Sunrise on the horizon

Impact of COVID-19 pandemic

Vietnam’s air cargo volume dropped 14.7% yoy in 2020. In 5M21, total air cargo volume increased 15% yoy thanks to the recovery of global trade. VNDirect expects the growth momentum to be maintained, leading to the 15% yoy growth in 2021F. Air cargo terminal companies that have capable of expanding capacity like SCS will benefit from the steady growth in 2022-30F expected by CAAV.

As international air traffic is still frozen and domestic air traffic was affected by the Covid-19 pandemic outbreak, 1Q21 revenue of aviation companies slumped dramatically, especially retailing & ground services companies and airlines (67.4%/61% yoy).

“Private enterprises such as VJC, SAS have actively liquidated assets, causing non-core revenue and financial income to increase sharply to help save net profit and cash flow while state-owned enterprises like HVN has difficulties in doing so due to problems with state procedures, causing net profit to drop drastically in 1Q21. The bright spots in the industry come from air cargo terminals with 1Q21 NP increased 3.4% yoy”, VNDirect said.

Compared to the 2019 base, HVN’s total flights number in 5M21 dropped by 43% while VJC’s dropped by 41% and Bamboo’s increased by 273%. With a high debt ratio of 33.3 as at end-1Q21, HVN will have difficulties in financing the fleet expansion when the pandemic is contained, creating opportunities for other private airlines which have sufficient credits for expansion to gain market share. HVN plans to sell 11 aircraft while VJC plans to receive 8 aircraft in 2021 and Bamboo has received 3 aircraft since Jan-21.

The forth wave of Covid-19 might lead to lower-than-expected domestic passenger throughput, implying a short-term risk for the aviation industry. However, VNDirtect expects the government to successfully contain this outbreak thanks to improved medical capacity and experiences in fighting the pandemics through the previous ones. The medium-term risk is higher-than-expected oil price leading to a higher ticket price and a decline in air travel demand.

Positive outlook

By July 14, 2021, more than 3.4 billion Covid-19 vaccine doses have been administered, enough to fully vaccinate 25,29% of the global population.

According to many forecasts, the bulk of the population in advanced economies will have been vaccinated by mid- 2022. These countries are also Vietnam’s key international air traffic markets.

Based on batches of vaccines expected to be received, VNDirect expects 14.66%/26.02% of Vietnam population to be fully vaccinated by the end of 3Q21/4Q21.

The IATA Travel Pass enables passengers to share the test and vaccination certificates and securely manage their travel in line with government requirements. This holds the key to the safe restart of international aviation and facilitate smooth travel for passengers in a verifiable manner while ensuring government entry requirements for Covid-19 testing or vaccination. At present, HVN, VJC, and Bamboo Airways have trialled the IATA Travel Pass mobile application.

Along with higher vaccination rates in Vietnam’s key international air traffic markets, VNDirect believes that Vietnam may re-open the international skies by end-3Q21 as expected.

Since Vietnam’s first infections were confirmed in Jan- 2020, the Vietnam aviation industry has operated at low performance while still following the government’s orders to contain the pandemic. Domestic traffic plunged after each Covid-19 outbreak while international traffic has been suspended since the 1st outbreak except for flights used to bring back Vietnamese citizens or carry foreign experts. With the government’s efforts to control the pandemic and the vaccination, VNDirect expects domestic and international traffic to recover from 4Q21F. Total domestic pax may slightly increase 1.4% yoy and total international pax may inch down 1.1% yoy in FY21F.

With the urgent deployment of global vaccination, for the medium-term, VNDirect  expects Vietnam domestic traffic to fully recover to pre-pandemic levels in FY22F (103.7% of FY19 base) and may reach 139.7% of FY19 base in FY25F.

For international traffic, VNDirect expects Vietnam international passengers to fully recover to the pre-pandemic levels in FY23F (100.9% of FY19 base) and may reach 127.5% of FY19 base in FY25F.